Question

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S&L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2018, S&L purchased Coca-Cola bonds at par for $965,000 and sold the bonds on January 3, 2019, for $968,500. At December 31, the bonds had a fair value of $960,000. When it purchased the Coca-Cola bonds, S&L Financial decided to elect the fair value option for this investment.

What pretax amounts did S&L include in its 2018 and 2019 net income as a result of this investment (ignoring interest)?

Answer 1

Solution:-

Date	General journal	Debit	Credit
27-dec-2018	Investment in coca cola shares	965,000
	Cash		965,000
31-dec-2018	Net realised holiding gain and loss	5,000
	Fair value adjustment		5,000
3-jan-2019	Cash	968,500
	Gain on investment		3,500
	Investment in coca cola shares		965,000
31-dec-2019	Fair value adjustment	5,000
	Net realised holding gain and loss		5,000